The senior living and care industry has faced considerable challenges related to COVID-19, but operators now have better tools and a better understanding of how to manage in the pandemic, LTC Properties CEO Wendy Simpson said Friday on the real estate investment trust’s third-quarter earnings call.
The Westlake Village, CA-based REIT is continuing to provide support to its operators, including by starting to roll out a Smart Design program conceived by Doug Korey, executive vice president of business development, and Mandi Hogan, vice president of marketing and investor relations, she said. The program helps operators upgrade their buildings to enable state-of-the-art infection protocols, including UV sanitation devices, custom dividers, touchless equipment and air filtration, including bipolar ionization, Simpson said.
“While some of the biggest operators in the country may have the resources to take on such projects on their own, smaller regional operators often don’t have the same bandwidth,” she said. LTC Properties is partnering with Avenue Development to retrofit buildings, and the REIT will provide lines of credit with flexible terms.
“While COVID was the catalyst for the program, we believe the benefits will serve us well over the long term by ensuring our portfolio includes safer, more updated assets,” Simpson said.
Investments
Although significant new investments did not occur in the quarter, LTC did commit almost $20 million in preferred equity. The REIT, for instance, invested $6.3 million in Fields Senior Living, which will develop and own a 95-unit assisted living and memory care community in Arlington, WA. Magnolia Place at Smokey Point is expected to be complete in the first quarter of 2022.
Another $13 million commitment in Vancouver, WA, is with University Village at Salmon Creek, a 267-unit independent living and assisted living community being developed by Koelsch Communities. The facility is expected to be completed by the end of 2022.
“In the current environment, we have focused our efforts on deploying capital in structured finance projects, and these preferred equity deals with Fields and Kolesch demonstrate our ability to successfully transact in this market,” said Clint Malin, co-president and chief investment officer.
In another joint venture with Fields Senior Living, Weatherly Court in Medford, OR, began accepting residents in September after putting infection control protocols in place. The 78-unit assisted living and memory care community is adjacent to Weatherly Inn, an independent living community the joint venture acquired in 2018.
“The market remains challenging, but I firmly believe that LTC has built a strong reputation as a creative financing partner in the seniors housing and care space,” Simpson said. “By ‘thinking outside of the REIT box,’ we create solutions that provide our operating partners with the financing they need to help grow their business.”
Revenue declines
Pam Kessler, co-president, chief financial officer and secretary, said that decreased rent from Preferred Care, resulting from the sale of that portfolio earlier this year; lower rent from Senior Lifestyle; deferred and abated rent; and a reduction of property tax revenue all contributed to the decline in total revenue for LTC.
Offsetting these reductions were contractual rent increases, increases related to acquisitions and completed development projects, and higher rent payments from Anthem Memory Care.
Simpson said while rent payments are trending up for the Senior Lifestyle portfolio, Senior Lifestyle remains in arrears. As of Sept. 30, Senior Lifestyle owed $3.8 million for second- and third-quarter rents. In cooperation with Senior Lifestyle, LTC is actively working to make changes to the 23 properties in that portfolio, which may include bringing in new partners, pursuing the sale of some buildings, or retaining Senior Lifestyle on some of the properties. Simpson said LTC is in negotiations with several parties and expects to have resolution for the majority of the portfolio in early 2021.
LTC collected 94% of its third-quarter rent — 97% excluding Senior Lifestyle. Rent deferrals and abatements were granted to three private pay operators.
“Despite the write-offs we have experience so far in 2020, we continue to see signs of progress within our portfolio and throughout the industry as a whole,” Simpson said. “Our operators have learned a lot during the last several months, and I believe they understand the steps required to safely expand visitation and accept new admissions, while still focusing on the care of their residents, patients, families and staff.”
COVID-19 challenges
Simpson noted that private-pay operators now are receiving COVID-19-related financial aid and testing from the federal government, “after a considerable lobbying effort.”
“Government support has been and will continue to be vital for our industry,” she said.
Mark Parkinson, president and CEO of the American Health Care Association / National Center for Assisted Living, a guest speaker during the earnings call, said that COVID-19 has presented “both the most significant clinical challenge and the most significant business challenge that the sector had ever faced.”
In March, Parkinson said, questions swirled around the sector, including whether it would collapse and whether residents and employees would flee buildings. The answer to all of those questions eight months later, he said, is no.
“The system didn’t collapse. The facilities held together,” Parkinson said. “Certainly, they faced enormous challenges, but unlike facilities in some parts of the world, where the employees literally did flee and the residents were forced to fend for themselves, our long-term care system had held it together.”
Similarly, questions on the business side were about funding and occupancy.
“Yes, there has been a devastating business impact,” Parkinson said. “But for the most part, assistance both from the federal and state level has filled in the gaps for many of the providers and allowed the business side to continue.”
In specifically addressing assisted living, Parkinson said the sector has not been able to achieve the kind of lobbying success enjoyed by skilled nursing.
“I do think that there’s some important breakthroughs recently and that there will be more successes down the road,” he added.
The fact that the federal government does not regulate assisted living meant that legislators had to work with trade organizations and providers groups to gain a better understanding of that part of the industry, Parkinson said. Eventually, he added, the industry convinced policymakers that assisted living needed help as well.
“We are hopeful and optimistic that as the weeks and months continue, now that we’ve broken through with assisted living, we’ll be able to have greater success down the road,” Parkinson said.
So what’s next?
Regardless of the outcome of this week’s election, Parkinson said, another stimulus bill likely will come, although the size and timing remain to be seen. Another question that remains, he said, is whether federal lawmakers will pass legislation that grants providers liability protections related to the pandemic.
But the industry has received positive news on the vaccine and testing fronts, he added. Testing is continuing to improve and is getting less expensive. And policymakers not only are making assisted living and skilled nursing a priority, but they are providing a “turnkey program” for distribution through an agreement with Walgreens and CVS. Senior living and other long-term care providers have until Nov. 6 to sign up for the Partnership for Long-Term Care Program.
Other positives for the industry, Parkinson said, include a “dramatic” increase in the demographic of older adults aged 80 to 85 and less capacity as the pandemic discourages new investment.
“I continue to believe in the space,” Parkinson said. “As horrific as this looked back in March, we’re in a much better spot right now.”
Read more about Parkinson’s remarks here.
